Journal of World Business 45 (2010) 59–67
Contents lists available at ScienceDirect
Journal of World Business
journal homepage: www.elsevier.com/locate/jwb
Understanding multi-level institutional convergence effects on international
market segments and global marketing strategy
David A. Griffith *
Department of Marketing, The Eli Broad Graduate School of Management, N370 North Business Complex, Michigan State University, East Lansing, MI 48824-1122, United States
A R T I C L E I N F O
A B S T R A C T
Keywords:
Marketing strategy
Institutional economics
Convergence
Market segments
Dynamic changes in the global marketplace have increased opportunities for marketing strategy
standardization due to the convergence of cross-national market segments. An oversimplified
understanding of the complexities of this convergence could lead to ineffective global marketing
strategy execution. This study develops a multi-level institutional approach to address level-based
convergence effects necessary to understanding market segment convergence and its influence on global
marketing strategy. A model of influential level effects on global marketing strategy is developed having
implications for global marketing academics and practitioners.
ß 2009 Elsevier Inc. All rights reserved.
The development of global marketing strategy has been the
subject of intense academic debate and research for decades (cf.,
Baalbaki & Malhotra, 1993, 1995; Katsikeas, Samiee, & Theodosiou,
2006; Ryans, Griffith, & Jain, 2008; Sanchez-Peinado, Pla-Barber, &
Hébert, 2007; Sousa & Bradley, 2008). Central to this debate is the
extent to which marketing strategy elements, e.g., elements of the
marketing mix, can be transferred effectively across countries (e.g.,
Baalbaki & Malhotra, 1993, 1995; Jain, 1989; Katsikeas et al., 2006;
Okazaki, Taylor, & Doh, 2007; Onkvisit & Shaw, 1987, 1999;
Ozsomer & Prussia, 2000; Sanchez-Peinado et al., 2007; Seggie &
Griffith, 2008; Shoham, Brencic, Virant, & Ruvio, 2008; Solberg,
2000; Taylor & Okazaki, 2006). Underlying this debate has been the
weighting of the effectiveness gains of local market adaptation
against the potential economic benefits obtainable through
standardization in cross-national segments (Katsikeas et al.,
2006; Ozsomer & Prussia, 2000; Ryans, Griffith, & White, 2003;
Sousa & Bradley, 2008). This has become increasingly complex
given the movement toward globalization at multiple levels and
the increasing dynamism of markets and their effects on market
segments (Ghemawat, 2003; Luo, 2007; Okazaki et al., 2007).
The issue of market segments and market segmentation has
received increased attention in the literature due to globalization
(Steenkamp & Ter Hofstede, 2002). A wide variety of segmentation
bases and methods have been used by scholars investigating this
important area (e.g., Askegaard & Madsen, 1998; Bolton & Myers,
2003; Day, Fox, & Huszagh, 1988; Steenkamp & Ter Hofstede,
2002). Wedel and Kamakura (1999) note that the goal of market
segmentation is to identify those individuals who exhibit similar
* Tel.: +1 517 432 6429; fax: +1 517 432 1112.
E-mail address: griffi[email protected].
1090-9516/$ – see front matter ß 2009 Elsevier Inc. All rights reserved.
doi:10.1016/j.jwb.2009.04.006
behaviors and therefore will react uniformly to marketing stimuli.
While market segments have often been viewed as having clearly
defined boarders within a nation-state, the movement toward
integrated markets due to globalization has created the need for
conceptualizing market segments in new ways (Ghemawat, 2003;
Okazaki et al., 2007). For example, as Ghemawat (2003) notes,
market integration creates opportunities for firm strategies to
stretch across national boundaries in a semi-globalization
approach. While the issue of global marketing strategy employment is well formulated, limited research has employed a strong
theoretical foundation for its understanding (Lages, Jap, & Griffith,
2008; Morgan, Kaleka, & Katsikeas, 2004). The extant literature has
done little to incorporate the theoretical complexity of the
environment to provide academic or practitioner actionability,
an action called for by Katsikeas et al. (2006).
The purpose of this study is to contribute to the literature by
specifically addressing these limitations (i.e., lack of theoretical
foundation and complexity of the environment) in the literature by
employing institutional economics to examine the factors influencing the changes in cross-national market segments and adaptation appropriateness of a firm’s global marketing strategy as the
firm operates across countries. Institutional economics is used to
understand the appropriateness of global marketing strategy
elements. This will provide academics and practitioners with a
better understanding of how to adapt and standardize their
marketing strategy. Institutional economics is discussed first,
explicating the dimensionality of institutions. Next, the multi-level
nature of institutions in which firms operate, and the dynamic
nature of these elements are addressed. This sets the foundation
for market segment convergence. Next, we discuss the complexity
of global marketing strategy, both as discussed in the literature
(i.e., the complex nature of each marketing mix element) as well as
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D.A. Griffith / Journal of World Business 45 (2010) 59–67
executed within the marketplace. Implications for academics and
practitioners are then discussed setting forth a foundation for
actionability.
1. The complexity of institutions
1.1. Institutional economics
Institutional economics has become a central aspect of
international research (Jackson & Deeg, 2008; Luk et al., 2008;
Luo, 2005). Institutional economics is founded on the premise that
the institutional environment is composed of a set of fundamental
social, legal and political tenets that govern economic activity
(Davis & North, 1970; North, 1990). These tenets influence the
organizations operating within each country market. Empirical
studies based on nation-state level factors (reflective of institutional environments) such as education, capital investment,
technological innovation, national culture, etc., continue to
demonstrate nation-state-based performance differences (e.g.,
Chelminski & Coulter, 2007; Franke, Hofstede, & Bond, 1991;
Gomez-Meija & Palich, 1997; Homburg, Kuester, Beutin, & Menon,
2005; Luk et al., 2008; Shane, 1995; Song, Nason, & Di Benedetto,
2008). For example, Franke et al. (1991) demonstrate that
differences in nation-state level economic performance may
partially result from differences in national culture. In addition,
research suggests that the more dissimilar the country profiles, i.e.,
institutional environments, the more difficult it is to understand
the requirements of the collection of operations and responses
appropriate to local demands (Goerzen & Beamish, 2003). To better
understand these institutional elements, each is briefly discussed.
Social institutions are constructions derived from the culture of
individuals within a set society. Culture is one of the most studied
aspects of institutional effects on business, most notably through
the work of Hofstede (Kirkman, Lowe, & Gibson, 2006). Culture is
defined as the homogeneity of characteristics that separates one
human group from another and provides a society’s characteristic
profile with respect to norms, values and institutions that affords
understanding to how societies manage exchanges (Hofstede,
2001). While numerous frameworks of culture have been offered
(e.g., Clark, 1990; Hofstede, 2001; Triandis, 1995; Trompenaars &
Hampden-Turner, 1998), the work of Hofstede (2001) presents an
ideal conceptualization for the study of social institutions as it
directly relates to the attitudinal and behavioral approach upon
which exchange transactions (e.g., commerce) are founded.
Hofstede (2001) identifies five dimensions along which countries
can be classified: individualism, power distance, uncertainty
avoidance, masculinity and long-term orientation. While Hofstede’s classification provides for national cultural understanding,
more fine grained insights can be gained by examining specific
country cultural elements. For example, the significance of key
cultural institutions such as guanxi (connections, relations) and
propriety (li) is often traced to the Confucian emphasis on social
roles and clan ties (Gu, Hung, & Tse, 2008; Lee & Dawes, 2005;
Peerenboom, 2001). Guanxi, in particular, can play a role in the key
commercial area of contract implementation (Ahlstrom, Bruton, &
Yeh, 2008; Peerenboom, 2001), trust in firm boundary spanners
(Lee & Dawes, 2005), as well as on firm capability (Gu et al., 2008).
The legal element of institutional economics is concerned with
codified rules and laws and their impact on organizations and
individuals (North, 1990). This institutional environment encompasses property rights, contract law, company law and arbitration,
and numerous commercial customs, and differs widely across
nation-states (Scott, 1995; Zhang, Griffith, & Cavusgil, 2006). As
firms operate within legal environments, their operations are
constrained by the legal parameters the operating environment
sets forth. For example, Edelman and Suchman (1997) denote three
unique legal environments influencing organizational activities:
the facilitative environment (i.e., law provides for an exogenously
developed passive set of policies and practices that managers
actively engage), the regulatory environment (i.e., an exogenously
developed active set of constraints injected into the firm’s
operating environment) and the constitutive environment (i.e.,
where the legal system constructs and empowers organizational
actors and their relationships). The implication of the institutional
element is clearly delineated in the literature. Studies show that
differences in the legal systems in two institutional environments
can influence shareholder protection (La Porta, Lopez-De-Silanes,
Shleifer, & Vishny, 1998) and the time and costs associated with
opening a new business (Djankov, La Porta, Lopez-de-Silanes, &
Shleifer, 2000). Similarly, Capelleras, Mole, Greene, and Storey
(2008) found that when examining registered new venture growth
rates across markets, differences in regulatory environments
influenced growth. Further, Zhang et al. (2006) indicate that
differences in legal environments influence the timing of the
dispute handling procedures in contract violations, therefore
influencing the overall governance of exchange transactions.
The political institutional environment is also a fundamental
aspect influencing business. The political environment refers to the
structuring and operation of political institutions within a society.
Political institutions exist along a continuum from democracy to
totalitarianism. A democracy offers constitutional opportunities
for changing governing officials, and a social mechanism which
permits the largest possible part of the population to influence
major decisions by choosing individuals for political office (Lipset,
1995). Common traits of a democracy include popular sovereignty,
political equality, majority rule, civic participation, a free press and
protection of individual liberties. Alternatively, a totalitarian
political systems is one in which one party controls all the
political, economic, military and judicial power (Roskin, Cord,
Medeiros, & Jones, 2000). Totalitarian political environments are
characterized by a single ideology, a monopoly in communication
and a controlled economy (Friedrich & Brzezinski, 1965).
Rodriguez, Siegel, Hillman, and Eden (2006) note the importance
of political institutional effects on firm business strategy and the
need for greater guidance in the literature as to how these
environmental aspects influence firm competitive strategy.
Similarly, Dow (2000) notes that differences in political systems
are a key element separating nation-states influencing market
selection decisions.
1.2. Degree and speed of institutional convergence
These three institutional elements have been employed to
categorize nation-state environments when exploring critical
global marketing issues (see Fig. 1). The conceptualization of
nation-state institutional elements has been static in nature. This is
probably due to the cross-section research employed in comparative market system research and its general reliance on static
economic models. However, institutional elements are not static in
nature but rather ever evolving through integrative efforts both
within and between macro (e.g., institutions) and micro (e.g., firms,
consumers) economic actors (Akhter, 2004; Ghemawat, 2003;
Holm & Sorenson, 1995). Akhter (2004), building on Holm and
Sorenson (1995) and consistent with Ghemawat (2003), notes that
at the country level, globalization is a process of intensified
interaction between markets that fundamentally changes the
economic, social and political positions of these markets. The
degree of convergence of institutional elements of these markets is
parallel to the degree of engagement of an individual nation-state
within the global environment. This entails integration not only in
terms of frequency of engagement (i.e., the number of bi-lateral or
multi-lateral trade agreements a country has made), but more
D.A. Griffith / Journal of World Business 45 (2010) 59–67
61
Fig. 1. Convergence of institutional elements.
importantly, the level of engagement of these agreements (e.g.,
political union, economic union, common market, customs union,
free trade area).
When nation-states engage in a greater number of trade
agreements, institutions become more connected, allowing for
greater interaction, and exchange of ideas, be they cultural,
political or legal. However, it is the movement of nation-states in
level of engagement that increases the degree of convergence.
Specifically, as a nation-state moves from a free trade area toward a
political union, trade barriers fall, labor and capital begins to move
more freely across nation-states, therefore allowing greater
integration and market segment convergence. Increasingly levels
of engagement define new mandates of convergence. The movement from a free trade area to a customs union (e.g., the Andean
Community in 2003) requires the establishment of common
external tariffs, therefore effectively setting price boundaries
within the multi-country market, minimizing price arbitrage. As
greater integration efforts are made, such as the Andean
Community’s movement toward a common market, the free
movement of labor and capital increase interaction among
government actors as well as citizens, thereby increasing market
segment convergence. More of note, as nation-states move from a
common market to a political union (e.g., as observed in the
European Union), the enactment of a supranational government
brings convergence to economic policy as well as the regulatory
environment, inclusive of advertising rules, product standards, etc.
It is also important to recognize that the speed of institutional
convergence is not occurring equally across nation-states (as
evidenced by differing levels of frequency and level of engagement). For example, some nation-states, such as France, Italy and
Spain have engaged in integration efforts of high levels of
engagement, whereas other nation-states, such as Japan and
Paupa New Guinea, while engaging in many different engagement
agreements, have maintained relatively low levels of engagement
(e.g., free trade agreements). Differences in the level of engagement across nation-states influence their speed of convergence.
Furthermore, it is important to note that these variances are also a
derivative of the institutional element examined (even when
frequency and level of engagement are constant).
Whereas political and legal changes made to the institutional
environment occur upon commencement (e.g., when the agreement has been signed into law), the speed at which social changes
occur is much slower. For example, when looking at the United
States and its engagement in integration efforts one can see that
the signing of the North American Free Trade agreement presented
some immediate political and legal changes (with immediate tariff
reductions on most products), and other legal changes set to be
phased in at latter pre-specified dates (e.g., 5, 10 or 15 years).
However, when considering social elements, although Canada,
Mexico and the United States have engaged in a substantially
greater amount of trade, minimal convergence has occurred across
these nation-states. Taken from an even more historic perspective
within the United States, it can be argued that although the
Northern and Southern States of America integrated after the civil
war, cultural differences continue to exist almost 150 years later
(these differences are observable in consumer product preferences,
ideological positions on the role of government, etc.).
It is important to consider and incorporate differences in the
speed of convergence when examining institutional elements
influencing commercial activities. While political and legal
changes can occur quickly and be enacted quickly (such as
certification standards for products (e.g., Rosen & Sloane, 1995)),
social aspects of market segments (e.g., the wants or preferences of
a particular market segment) may converge at a much slower rate.
Further, it is important for global marketing managers to recognize
the separate institutional effects as convergence in political and
legal institutional elements may provide a false sense of market
segment convergence (when viewed in relation to social institutions).
1.3. Multi-level institutional analysis
While institutional economics has tended to conceptualize
institutions at the country level, it is important to note that these
elements are not confined to current political nation-state
boundaries, nor do they only operate at a single unit of analysis.
Specifically, each institutional element operates at multiple levels
(see Fig. 2). For example, when considering political and legal
institutional environments, three levels can be considered in
relation to their eventual influence on market segment issues and
hence resultant global marketing strategy implications. The rank
order, based upon scope, includes global, regional and nation-state.
At the highest order of aggregation is global integration. Global
integration efforts include relatively weak organizational structures to more binding structures. For example, the United Nations
imposes few binding accords upon its members, but engages in
integration through such accords such as the United Nations
Declaration of Human Rights, which sets forth a set ideology.
Alternatively, the World Trade Organization (WTO) sets formal
precepts regulating commercial activity among signatures (Lazer &
Shaw, 2000; Rosen & Sloane, 1995). Through global agreements,
specific market segments covered under such agreements can
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D.A. Griffith / Journal of World Business 45 (2010) 59–67
Fig. 2. Multi-level institutional approach.
experience levels of convergence. For example, the United Nations
Declaration of Human Right provides an ideological foundation
bringing forth commonality within members which can be
operationalized in employment practices, product offerings, etc.
The WTO provides for more binding political and legal institutional
arrangements that set forth the convergence of business practices.
Through the elimination of tariff barriers in goods and services
across a wide range of products, firms are able to competitively
engage in commercial transactions in the markets of WTO
members. This has not only facilitated trade, but also increased
consumer choice, reduced market prices and encouraged market
growth. The increase in trade across nation-states has increased
interaction among nation-states therefore facilitating convergence
of business and consumer market segments (i.e., the exposure to
similar product assortments, common information sources, etc.,
facilitates convergence of wants and desires).
A smaller scope of aggregation can be observed in regional
agreements, often having the most direct impact on convergence
given the greater ease of coordination with fewer members (when
compared to the global level). In regional agreements, such the
European Union, creation of large, cross-nation-state market
segments can evolve (Ghemawat, 2003; Okazaki et al., 2007;
Rosen & Sloane, 1995). Few would argue with the contention of the
cross-nation-state convergence of many European countries since
the signing of the Treaties of Paris and Rome. The re-unification of
Western Europe under the mantle of the European Union has
created significant opportunities for businesses due to the creation
of cross-nation-state product standards, advertising regulations,
currency, etc. While the European Union is not a single market, the
increase in common standards has worked to facilitate larger,
cross-national market segments for a wide range of business and
consumer products. Many firms, such as T-Mobile and Dell
Computers, currently offer standardized products to many
Western European businesses.
Alternatively, isolationist approaches minimize convergence of
market segments across nation-states. This can often be observed
either through political decisions not to engage other countries in
trade agreements, or in protectionist policies (e.g., tariffs, unique
market standards), which in effect isolate the domestic marketplace. For example, China, through the employment of a number of
trade constraining policies, has worked to minimize engagement
(in respect to foreign producers and products) with the outside
market (even though they have joined the World Trade Organization which has allowed them to export broadly). Restrictions on
the manner in which the automotive industry operates in China
(such as homologation standards, partnership requirements,
import restrictions) have limited access to local consumer markets
by foreign automakers, thereby limiting market segment convergence.
While understanding the multi-dimensional influences of
political and legal institutional effects allows us greater insight,
the social environment presents its own complexities. For
example, in relation to culture, while many scholars employ
culture at the national level, scholars note that within nation-state
boundaries multiple cultures exist. For example, Kahle (1986)
delineates North America into nine separate cultural groupings
based upon differences in underling values. Further, Sirmon and
Lane (2004) have decomposed national cultural influences in
international business into national, organizational and professional (suggesting parameters of market segments for business
offerings). Taken together these suggest a multi-dimensional
decomposition of the cultural institution as an effective influence
on market segments. This is of note as greater heterogeneity across
levels decreases the size of cross-national market segments while
greater homogeneity across levels increases the size of crossnational market segments. These conditions ultimately influence
global marketing strategy adaptation and standardization.
2. Global marketing strategy implications
2.1. Marketing strategy-environment fit
Marketing strategy is a means by which firms respond to
competitive market conditions. Although marketing strategy
consists of many aspects, the operationalization of global marketing strategy in much of the extant literature has been brought forth
via the four elements of the marketing mix, i.e., product, pricing,
place and promotion, either examined as four components or as a
unified approach (Cavusgil & Zou, 1994; Katsikeas et al., 2006). In
fact, the marketing mix strategy to performance linkage has been
one of the most widely investigated topics of global marketing
research (e.g., Cavusgil & Zou, 1994; Katsikeas et al., 2006; Lages
et al., 2008). However, although a great deal of research has been
conducted in the area, the diversity of conceptualizations and
performance measurements has led to inconsistent and contradictory findings (Aaby & Slater, 1989; Ryans et al., 2003). Katsikeas
et al. (2006) conducted a meta-analysis of the empirical work on
global marketing strategy to performance relationship and noted
that inconsistent findings could be partially explained by strategyfit relationships.
The environment-strategy framework theorizes that the coalignment of strategy to environmental factors (i.e., fit) allows
firms to operate effectively, thus enhancing performance (Child,
1972; Luo & Park, 2001; Xu, Cavusgil, & White, 2006). The
foundation of the environment-strategy framework is in the
literatures of strategic co-alignment (Astley & Van de Ven, 1983)
and strategic choice (Child, 1972, 1997). The strategic coalignment literature argues that the alignment between a firm’s
strategic profile and its external environment maximize operational effectiveness (Child, 1972; Venkatraman & Prescott, 1990).
Under this perspective, operational effectiveness results from a
congruence of relevant contextual and strategic factors whereas
misalignments between environmental elements and firm strategy
create barriers to operations, hindering effectiveness (Bourgeois,
1980; Venkatraman & Prescott, 1990; Xu et al., 2006). While a
number of environmental factors have been brought forth in the
prior literature to represent the environment, institutional
economics provides for a structured and accepted approach, from
which to investigate environmental influences on marketing
strategy.
The multi-level analysis of the institutional environment,
coupled with the dynamic view of institutional environments
D.A. Griffith / Journal of World Business 45 (2010) 59–67
can assist global marketing academics and practitioners in more
clearly understanding the complexities they face as market
segments converge globally (resultant from convergence leading
to changes in preferences, thus making some extant market
segments larger, others smaller, as well as creating new segments
with new preferences). Exposition of marketing strategy at the
aggregate marketing mix level does not provide the necessary
detail for effective strategy development (Griffith, Chandra, &
Ryans, 2003; Harvey, 1993; Ryans et al., 2008). For example,
although Katsikeas et al. (2006) provide some clarity to the
marketing strategy to performance relationship via the inclusion of
fit, further clarity could be gained by the decomposition of
marketing strategy standardization/adaptation at the marketing
mix level (e.g., Cavusgil and Zou, 1994), or more appropriately, at
the sub-marketing mix element level as suggested by Griffith et al.
(2003), Harvey (1993), Okazaki et al. (2007), Ryans et al. (2008) and
Wind (1986).
2.2. Decomposing global marketing strategy effects
Global marketing strategy has often been thought of as the
marketing mix level due to the fact that it is through the marketing
mix that global strategy is operationalized in the marketplace. One
of the most well cited works in the area (i.e., Cavusgil & Zou, 1994)
conceptualized and captured marketing strategy as product
adaptation, promotion adaptation, support to foreign distributor/subsidiary and price competitiveness. Through the employment of the marketing mix level marketing strategy approach,
researchers have been able to gain insights into how changes in
marketing mix variables influence the firm’s ability to increase
overall performance (e.g., Lages et al., 2008). However, scholars
such as Harvey (1993), Ryans et al. (2008), Wind (1986) and others,
have cautioned that employment of the marketing mix as the unit
of analysis, while providing some clarity (e.g., as opposed to a
higher level of aggregation such as global marketing strategy (e.g.,
Katsikeas et al., 2006; Zou & Cavusgil, 2002) provides too high of a
level of aggregation to be particularly effective for academic or
practitioner actionability. Rather, these scholars suggest that
academic and practical understanding of the necessity for
adaptation of global marketing strategy elements should be
63
conducted at the element level within each marketing mix
component. Fig. 3, drawing from the influence of multi-level
convergence effects on market segments presented in Fig. 2,
addresses the global marketing strategy implications of convergence, each of which will be discussed in the following.
2.3. Promotion strategy
The feasibility of promotion standardization is reliant on the
existence of homogeneous market segments across countries
(Blackwell, Ajami, & Stephan, 1992; Okazaki et al., 2007). If
‘‘segment simultaneity’’ (Levitt, 1983) exists, it implies that
consumers in the target market would react similarly to marketing
stimuli and share common behavioral response patterns and
preference structures (Harvey, 1993; Jain, 1989; Levitt, 1983;
Okazaki et al., 2007; Ryans, 1969). If, for example, a firm
approaches two widely divergent target markets with the same
promotional elements, differences in institutional elements would
necessitate adaptation of the firm’s promotional program to
effectively match the needs of the market segment. Alternatively,
when cross-national market segments are larger, a firm can
achieve the economic and administrative benefits of promotion
program standardization. Given the complexities of the institutional environment, adaptation and standardization is not only
determined by market segment needs, but also by political and
legal issues pertaining to the acceptability of differing promotional
approaches (e.g., comparative versus non-comparative, timing (as
denoted previously)).
To enhance illustration of this issue, the promotional component of a firm’s marketing strategy can be viewed in terms of
Harvey’s (1993) specification of five promotional elements to be
considered when examining adaptation/standardization: (1)
research and development, e.g., research to identify effective
appeals within and across markets, (2) creative, e.g., development
and execution of promotional idea, (3) media, e.g., channel
selection, timing, (4) production, e.g., creation and execution of
the promotion, (5) post-promotion research, e.g., evaluation of
effectiveness of the promotion. This is not to suggest that the five
identified elements are the only promotional elements that should
be considered. These are exemplars suggestive of elements
Fig. 3. Marketing strategy implications.
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D.A. Griffith / Journal of World Business 45 (2010) 59–67
needing evaluation. A firm needs to understand its promotion
program and identify the most seminal elements of that program
to incorporate into the decision process (this is most important as
firms engage in outsourcing of their promotional efforts as this
would indicate provider selection criteria).
Once the elements applicable to the firm are identified, it is
important for the firm to understand that each of the elements
identified can be individually influenced by the institutional
environment and therefore should be considered in isolation in
relation to the standardization/adaptation decision. For example,
Griffith et al. (2003) found differing environmental effects on two
key elements of promotion strategy (i.e., message standardization
and packaging standardization). As elements in the institutional
environment converge, creating larger market segments that
respond similarly to promotional stimuli, firms are able to decrease
the degree of cross-nation-state promotional adaptation along
certain promotional elements. For example, Okazaki et al. (2007)
found that economic integration efforts in the EU brought forth
advertising strategies with cross-market appeal. This complexity
suggests that global marketing managers carefully address the
influence of institutional elements on each of the promotional
elements to determine optimal degrees of standardization and
adaptation of each element.
2.4. Product strategy
Product strategy refers to the degree that a firm standardizes or
adapts its products/services, inclusive of core and augmented
product adaptations to customers’ tastes, product quality or safety
standards, etc. The effect of product adaptation on performance
has been one of the most widely researched marketing mix
strategies (Baalbaki & Malhotra, 1993, 1995; Jain, 1989; Levitt,
1983; Ozsomer & Prussia, 2000; Szymanski, Bharadwaj, &
Varadarajan, 1993). For firms (e.g., Procter and Gamble, General
Motors, Johnson & Johnson) serving dissimilar customer segments
throughout the world, standardization may alienate foreign
customers who might switch to another product better fulfilling
their needs (Kotabe & Helsen, 2001). Firms engaging in product
adaptation can meet cross-border differences of the needs and
wants of the firm’s target customers, thus increasing customer
satisfaction and overall performance (Cavusgil & Zou, 1994; Kotabe
& Helsen, 2001). However, institutional convergence along a social
dimension is providing new opportunities for standardized
product strategies due to the growth in the size of cross-national
market segments resulting from greater exchange interactions.
The product component of marketing strategy necessitates
aspects inclusive of, but not limited to, product related research
and development, design, attribute development and functionality, and when engaging in market expansion, stage of the product
life cycle (Dawar & Parker, 1994; Szymanski et al., 1993). However,
this is not to suggest that the identified elements are the only
product elements that should be considered, but rather they are
suggestive of elements needing evaluation. Each firm should assess
its core and augmented offerings determining the value producing
elements in each market, thus gaining a better understanding of
the key components of delivered value in the marketplace.
Once the elements related to the firm’s product strategy are
identified, the firm should work to understand how each of the
elements is individually influenced by the institutional environment, setting the stage for the standardization/adaptation
decision. For example, research suggests that when consumers
use product elements as a cue to assess quality, they eliminate
comparable features across products and focus on the remaining or
unique features as the basis of their comparison (Houston &
Sherman, 1995). However, cue usage can differ across markets. For
example, Dawar and Parker (1994) demonstrated differences and
similarities in importance rating in a variety of cues across nationstates. Forsythe, Kim, and Petee (1999) found that even when
comparing two Asian markets (China and Korea), differences
existed in the way consumers made use of both intrinsic and
extrinsic cues. Cue utilization differences suggest the need for
adaptation where cue usage similarity would be suggestive of
opportunities for standardization. Through a careful examination
of the cue and preference structure of the firm’s market segments
across nation-states, opportunities for economies of scale via
standardization where social convergence has occurred can
provide the firm leverage opportunities (e.g., in research and
development), while differences in preferences (e.g., in aspects
such as product features) argue for adaptation. This suggests that
global marketing managers carefully address the influence of
institutional elements on each of the product strategy elements to
determine optimal degrees of standardization and adaptation of
each element.
2.5. Pricing strategy
Pricing strategy in the context of this study refers to the
standardization or adaptation of international pricing policies
(Theodosiou & Katsikeas, 2001). Firms are able to ensure
responsiveness to changing market conditions, competitive situations, and environmental forces, through the employment of an
adaptive pricing strategy while minimizing issues of price
arbitrage via standardization; when these strategies are under
the control of the organization (Cavusgil, 1996; Myers & Harvey,
2001; Sousa & Bradley, 2008). The firm’s pricing strategy is to some
extent influenced by institutional elements, such as legislative or
regulatory differences. For example, while some laws directly
effect prices, e.g., retail price maintenance, price strategies across
countries are also indirectly effected by regulations that influence
product requirements, technical specifications, electric, weight
and measurements, etc. (Cavusgil, Zou, & Naidu, 1993; Douglas and
Wind, 1987). Supportive of this argumentation, Theodosiou and
Katsikeas (2001) found that similarity in economic and legal
environments stimulated greater pricing standardization.
It is important to recognize that pricing strategy, as with other
marketing mix elements, consists of a number of elements. For
example, pricing issues such as price setting, price sensitivity, ease
of switching and positioning are all elements to a pricing strategy
given that these issues are taken into consideration when
determining price. This is not to indicate that these elements
are the only elements that should be considered, but rather, as with
the other marketing mix strategy elements, the firm should seek to
identify those key elements with respect to its offering.
After the determination of the elements central to the firm’s
pricing strategy is identified, institutional influences should be
examined to determine appropriate standardization/adaptation
decisions. For instance, as institutional environments converge,
economic conditions across nation-states move toward equilibrium (consistent with the theory of factor price equalization),
thus providing a market segment in which price sensitivity within
a market segment spanning multiple nation-states emerges and
stabilizes. However, the simple convergence of economic conditions, which might be brought about by legal and political
convergence, may not be resident in the marketplace at the social
level, thereby still necessitating price adaptation within nationstate markets (i.e., even though economic conditions may create an
apparent larger cross-nation-state market segment, it should not
be confused with a true market segment where price utilize curves
are identical). This complexity suggests that global marketing
managers carefully address the influence of institutional elements
on each of the pricing strategy elements to determine optimal
degrees of standardization and adaptation of each element.
D.A. Griffith / Journal of World Business 45 (2010) 59–67
2.6. Distribution strategy
Distribution strategy has been a well-investigated area within
the international marketing literature (e.g., Anderson & Gatignon,
1986; Bello & Gilliland, 1997; Solberg, 2008; Zhang, Hu, & Gu,
2008). Effectively structuring and governing the global distribution
element of the firm has substantial repercussions of the firm’s
ability to compete effectively (Bello & Gilliland, 1997; Solberg,
2008). However, a myriad of issues come into play as a firm
transcends its national boundaries. For example, differences in
legal environments can constrain a firm’s distribution options
within a market. Similarly, contracting issues in distribution
elements can create limitations of reparation for deviations from
the contract governing the distribution of the firm’s products and
the manner in which the distribution arrangement can be resolved
(Zhang et al., 2006). Thus, the firm’s ability to develop a globalized
distribution policy or even adapt to local changes can be hampered
as evidenced in the China beer industry (Slocum et al., 2006).
The complexity of distribution policy necessitates consideration of issues such as channel selection (e.g., direct versus indirect),
governance strategy (e.g., level of coordination), and margin
sharing. These issues add greatly to the complexity of developing
an effective distribution strategy for employment across or within
country markets (Anderson & Gatignon, 1986; Bello & Gilliland,
1997; Slocum et al., 2006; Solberg, 2008). While these elements are
important for the development of a distribution strategy, these are
used solely for illustrative purposes, with the intention that a firm
would engage in the discovery of the key elements of their own
distribution strategy that should be considered in relation to
determining standardized or adaptive approaches.
Once the distribution elements have been identified, the
institutional influences on these elements should be examined
to determine appropriate standardization/adaptation decisions.
For example, Bello and Gilliland (1997) note that market volatility
creates a unique adaptation problem with distribution strategy
necessitating variance in governance strategies across markets.
Similarly, legal constraints on margin sharing across markets can
make development of a unified distribution revenue sharing
strategy infeasible. However, often channel selection across similar
markets in relation to channel legislation and social institutions
allows for economies of scale leverage. Furthermore, consideration
of the size of the cross-market segment generated today by
converging institutional elements allows for the setting of
international distribution strategy, while forecasts of future
convergence allow for the framing of distribution strategy
dynamism. This complexity suggests that global marketing
managers carefully address the influence of institutional elements
on each of the distribution strategy elements to determine optimal
degrees of standardization and adaptation of each element.
3. Theoretical and managerial insights
The purpose of this study was to employ institutional
economics to examine the factors influencing changes in market
segments having implications for a firm’s global marketing
strategy. Calls in the literature for more theoretically founded
investigations of global marketing strategy have resulted in
theoretical development and application at the internal firm level
(e.g., Lages et al., 2008; Morgan et al., 2004). However, as the issue
of the appropriateness of global marketing strategy effectiveness
has been found to be derived from issue of fit (e.g., Katsikeas et al.,
2006), the need for theoretical treatment of context becomes
important.
Institutional economics presents a manner in which a better
understanding of the issue of global market segment convergence
can be investigated. Wedel and Kamakura (1999) note that the goal
65
of market segmentation is to identify those individuals who exhibit
similar behaviors and therefore will react uniformly to marketing
stimuli. Nowhere is this homogeneity more probable than when
institutions converge. However, this study cautions managers not
to oversimplify the environment but rather to think about
institutions along multiple levels, each having a different influence
on global marketing strategy elements and unique convergence
rates. For example, the expansion of the European Union from 15
members to 27 members may have provided for a movement
toward convergence on specific legal matters setting forth the
parameters for commercial transactions, and hence leading to
standardization of certain elements of a firm’s global marketing
strategy. However, making the assumption that the market can be
viewed as a unified market culturally would be a mistake. We
caution managers against the simplification of institutional
environments into the least common denominator. Institutional
economics provides us with a complex set of criteria to understand
the influencing factors of our environment. Only through detailed
investigation can greater insights be gained.
Furthermore, our model is dynamic in nature. People have for
too long employed a static view of institutional markets in the
investigation of global marketing activities. The importance of
time and change need to be incorporated into our managerial
decision models if a strong theoretical framework that can provide
practitioner with guidance can be developed. Harvey, Kiessling,
and Richey (2008) call for managers to use time as reference
criteria. Akin to this approach is understanding time in the
perspective of convergence. Convergence does not occur overnight.
Even when laws are changed, therefore designating a specific date
in which the operating environment has changed, the implementation and enforcement of said laws may have a considerable time
lag. For example, although China has entered the World Trade
Organization, its adherence to WTO policies and its enforcement of
these policies have yet to be fully fulfilled as the writing of this
work. Thus, strong market research is needed to identify when
market segments have adjusted to institutional changes. The
manner of measuring dynamic institutional convergence would be
a fruitful area of study.
Furthermore, the decomposition of dynamic institutional
elements has significant implications for those studying global
marketing strategy. Performance enhancement is only achievable
when marketing strategy fits the environmental context. However,
their employment of a macro-level global marketing strategy
adaptation/standardization construct subjugates the fundamental
elements of marketing strategy, within each of the four marketing
mix elements, therefore not allowing detailed insights necessary
for the practicing manager. We contend, much as Ryans et al.
(2008) and Griffith et al. (2003) have done, that scholars should
focus on the elements of each aspect of the marketing mix when
investigating the standardization or adaptation of global marketing strategy to provide more detailed insights into the dimensions
where standardization benefits may be gained. For, as Dawar and
Parker’s (1994) universality of cue utilization across markets
advanced our understanding of where gains could be made, only
through the analysis of the individual elements of the marketing
mix elements will academics forward an agenda that provides
strong managerial guidance.
4. Limitations and research directions
These findings are significant because of their theoretic and
managerial contributions to the understanding of marketing
segment change and implications for global marketing strategy.
While the study provides new insights, as with prior research, it
has its limitations. The limitations will be addressed with
directions for future research. First, it must be recognized that
66
D.A. Griffith / Journal of World Business 45 (2010) 59–67
the elements of institutional economics are intertwined. Interaction effects exist among the dimensions. These interaction effects
were not conceptualized within this study as the purpose of this
study was to provide a theoretical understanding of how
institutional convergence was impacting market segment convergence. However, the issue of the interaction of institutional
environments is very important as, at least to some extent, the
interaction of institutional elements influences the speed of
convergence. Theoretic and empiric work on the market convergence hypothesis attributed to institutional environment interactions could substantively advance our understanding.
This study is also limited by its central focus on macro-level
institutional effects. As noted, each of the institutional environmental elements can be further decomposed. Many distinctive
elements exist within the legal environment that may have unique
implications for differing aspects of global marketing strategy. For
example, differences in regulatory environment may create direct
versus indirect effects (e.g., retail price maintenance creates direct
pricing strategy effects, product requirements and technical
specifications create indirect effects (Cavusgil et al., 1993; Douglas
& Wind, 1987)). As such, further refinement in the detailed nature
of each institutional environment could be examined to explore
their effects on the elements of global marketing strategy.
Advancement of this topic could lead to more actionable strategies
for practitioners as well as an important area for academics (cf.,
Griffith, Cavusgil, & Xu, 2008).
The purpose of this study was to employ institutional
economics to examine the factors influencing cross-national
market segment development and implications for a firm’s global
marketing strategy. Although this area has received much
attention, much remains to be learned regarding the intricacies
of market segment convergence and global marketing strategy.
This is particularly of note given that the focus here was on one
element of global marketing strategy, i.e., marketing mix elements,
and not on broader marketing strategy issues. Thus, a continued
research effort is needed to more fully develop academic and
practitioner understanding of ‘‘what elements’’ of a firm’s
institutional environment are facilitating market convergence
and ‘‘how specific elements’’ of the firm’s global marketing strategy
should be adjusted (adapted or standardized) to enhance operational effectiveness.
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